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Report: Nestle

INTERNATIONAL BUSINESS
A REPORT ON NESTLE

Report: Nestle

INTRODUCTION:
Nestl is one of the oldest multinational businesses and focus in nutrition, health and wellness. It
was founded by Henri Nestl, a pharmacist, who established food for babies who were unable to
breastfeed in Switzerland in 1866. The company merged with the Anglo Swiss Condensed Milk
in 1905. Nestl expand their business through a series of acquisitions after World War II that
included Maggi (1947), Cross & Blackwell (1960), Findus (1962), Libbys (1970), Stouffers
(1973), Carnation (1985), Rowntree (1988) and Perrier (1992), (Nestle Management Report,
2008). By the 1990s, Nestl had more than 500 factories in 76 countries and sold its products in
193 nations almost every country in the world. Roughly 28.2 percent of its sales were made in
Europe, 33.1 percent in the Americas and 17.1 percent in Asia, Oceania and Africa (Nestl
Management Report, 2008).
It has been taking care for customers globally by providing hygienic food and ensuring good life.
They have been marketing their products by satisfying the needs of the all consumers age group.
The famous brands include Nescafe, Gourmet, Kit Kat, Maggi, Nestea, and many more are there
(Nestle, 2012).
It had to market its products by framing marketing strategies and keeping in mind the taste and
preference of consumers based in different countries. It was a challenging task for Nestle to
establish its position when ethnocentric products are already available in the domestic countries.
They have adopted the global culture for gathering information about new countries business
environment for going international. It has been focusing on its brands and entering into market
by increasing line extensions of a particular brand. The leadership position of Nestle is
maintained in market by supplying the products and also opening its outlets in public places for
the brand reinforcement. Nestle has been focusing and spending for Research and developmental

Report: Nestle

activities. The success behind Nestle is to operate in different countries by the form of Foreign
Direct Investment.

PRODUCTS
Nestl has 8,000 brands with a wide range of products across a number of markets, including
coffee, bottled water, milkshakes and other beverages, breakfast cereals, infant foods,
performance and healthcare nutrition, seasonings, soups and sauces, frozen and refrigerated
foods, and pet food. As of yearend 2010, Nestl held 29.7% of the shares of LOreal, the world's
largest company in cosmetics and beauty. Its brands including Garnier, Maybelline, and
Lancme as well as The Body Shop stores. LOral holds 10.41% of the shares of SanofiAventis, the world's number 3 and Europe's number 1 pharmaceutical company.

BUSINESS ANALYSIS OF NESTLE


ENTRY MODE:
Nestl is characterized as a multi-domestic company by its pronounced local responsiveness and
relatively weak global integration. Including its operating companies, such as Carnation,
Rowntree and Buitoni among others, it has traditionally practiced a decentralized approach to
management. Local operating managers thought to be much more in tune with local markets are
given the freedom to develop marketing strategies that match local needs. Like many other
companies pursuing a multi-domestic strategy Nestl has begun a move toward a more
centralized management structure, which has resulted in a re-organization around major business
lines. In order to reap the benefits of global leverage, companies realize that the multi-domestic

Report: Nestle

business model leaves too many initiatives to local levels thus resulting in missed opportunities
(Doole, 2004).
In terms of entry mode and internalization, Johanson & Widersheim-Paul/Vahlne (1975) claim
that internationalization is the product of a series of incremental decisions or stages based on
different foreign market entry modes. They introduce the Uppsala Internationalization model. In
this model the firms engagement in the specific country market develops according to an
establishment chain that has four stages. There is no regular export activities are performed in the
market; export only takes place via independent representatives, sales subsidiary and
manufacturing in the foreign market. The sequence of stages indicates an increasing commitment
of resources to the market. In addition, business activities are differed with regard to the market
experience gained. Nestl use direct exporting for entry mode, which is subsidiary and uses its
own organization in the overseas market.

MULTI-DOMESTIC STRATEGY:
Nestl focuses on internal growth and try to achieve greater volumes by innovating new products
and renovating existing products. This strategy has given Nestl the ability to grow many
products in the various fields of prepared foods, breakfast cereals, dairy products, baby foods,
beverages, ice-cream, bottle water, chocolate confectionary and pet care. In addition, Nestl is a
low cost operator. This allows them not only to edge ahead with low operating costs but also beat
the competitors by producing low cost products. Nestl has ability to customize global products
based on consumer choices in the local market. This is one of Nestls key strengths where its
subsidiaries develop products that match consumer preference in the local market. Due to the
nature of the markets psychological and cultural spread; Nestl believes that there are no global

Report: Nestle

consumers in the market. Its ability to customize products to the local markets brings association
in the mind of the customer and brand loyalty by using local names. For example, its
confectionery range sold in the US is called Rolo but in Russia, it is called Rossyia. In the US,
brands like Kit-Kat chocolate and Maggi noodles have been priced at US$0.2 and some other
chocolate and candy brand are priced at US$0.05 per unit. These price help Nestl reach more
customers not only in urban markets but also in rural markets. In the US, Nestl has two top
products capable of becoming at least regional which are pet food and ice-cream, but both lag
well behind the market leaders of Mars in pet food and Unilever in ice-cream. With the exception
of a few products such as its famous tomato sauce, eaten everywhere with burgers and hot dogs,
Heinz (US) applies effectively a multi-domestic strategy, making a small effort to force a global
or even pan-regional strategy. For instance in 2001 it took over Honig (Holland) which makes
very local traditional delicacies, such as chocolate sprinkles topping.

REASON FOR FOREIGN ESTABLISHMENT


1. Uneven Economic Development of Various Countries in The world:
Nestle is operating its company in developed countries and developing countries having more
than 450 factories across the globe. During the early 1990s, Nestle faced increased competition
due to saturation in the European and North American markets. In addition, the balance of power
was shifting away from the large scale manufacturer of branded foods and beverages and toward
nationwide supermarket and discount chains. This resulted in heavy price consumption in several
key segments of the food and beverage market (e.g. cereals, coffee, and soft drinks).
Because of these developments, Nestle has concentrated its growth strategy toward emerging
markets such as Eastern Europe, Asia and Latin America. These markets present attractive

Report: Nestle

opportunities for the company as they entered a stage of economic and population growth
combined with the adoption of market-oriented economic policies by the government. Moreover,
consumers in these nations with rising income are likely to buy branded food product instead of
basic no brand food.
2. Differences in raw material resources:
Nestl has over 8,000 brands, with a wide range of products across a number of markets in
different countries, including coffee, bottled water, milkshakes and other beverages, breakfast
cereals, infant foods, performance and healthcare nutrition, seasonings, soups and sauces, frozen
and refrigerated foods, and pet food. These products require raw material to produce them into
finished product. Nestle maximizes its short-term profit by establishing factories in countries
where there are adequate availability of raw materials. Nestle also import this raw materials in
countries where raw materials are inadequate. For example: Nestle has factories that produces
palm oil in Borneo and other regions of Africa. Nestle purchases cocoa from Cote divore and is
used in the production of chocolate in the United States of America (USA).
3. Differences in Labor force:
Nestle locates its factories in countries where there is availability of labor force. Nestle tend to
establish more factories where labor active individual are higher especially in Asia e.g. :( India
and China) and in developing countries e.g.: (Nigeria and Cote divore).
4. Uneven distribution of financial resources:
A product of Nestle that is produced in a country can have more transformation of inputs to
output more than the other country which is required by the market. This is due to uneven
distribution of financial resources in the production process. This includes Land, Labor, Capital,
and Organization).

Report: Nestle

CONCLUSION:
Globalization is changing the world economy. It is a challenge, nations need to accept the threats
and opportunities, if not they could be left behind as a people or nation. Nestl pursuing a multidomestic strategy when there is a high pressure for local responsiveness and low pressures for
cost reductions. Changing offerings on a localized level increases a companys overall cost
structure but increases the likelihood that its products and services will be responsive to local
needs and therefore be successful. Nestl can strengthen its position as a well-being and nutrition
company as consumers are becoming more health conscious. Nestl would be able to capitalize
on health conscious trends by increasing focus on nutrition. In terms of confectionery segment,
Nestl are able to leverage centralized research and strategies and apply them through renovation
and innovation while respecting habit and local tastes.
A global strategy is a low-cost strategy. Organization that experience high cost pressures should
use a global strategy in an attempt to benefit from scale economies in production, distribution
and marketing. By offering a standardized product worldwide, firms can leverage their
experience and use aggressive pricing schemes (Hodgetts, 2006). This strategy makes most sense
where there are high cost pressures and low demand for localized product offerings. A global
company is able to achieve global-scale efficiencies through product standardization.